How Does Web Personalization Create Value? Lower Cash Flow Volatility or Enhanced Cash Flows

46 Pages Posted: 10 Jun 2019

See all articles by Kartik Kalaignanam

Kartik Kalaignanam

Moore School of Business (University of South Carolina)

Tarun Kushwaha

University of North Carolina Kenan-Flagler Business School

Koushyar Rajavi

affiliation not provided to SSRN

Date Written: May 8, 2019

Abstract

This study examines the performance consequences of web personalization (WP), a type of personalization in which web content is personalized and recommendations are offered based on customer preferences. Despite the growing popularity of personalization, there is a dearth of research at the firm level on whether and how web personalization creates shareholder value. We develop and test a conceptual model that proposes that the impact of WP on shareholder value is mediated by 1) cash flow volatility and 2) premium price. The hypotheses are tested based on 603 firm-quarter observations spanning 80 firms over six years in the online financial services industry. The results suggest that while WP lowers the volatility of cash flows, it only enables firms to charge premium prices when online trust is high. Additional tests reveal that the reduction in cash flow volatility is because of lower churn as opposed to acquiring new customers or greater cross-buying. Finally, online trust positively moderates the relationship between WP and cash flow volatility and price premia. Practical implications of the findings are discussed.

Keywords: web personalization, retail strategy, cash flow volatility, price premium, market-to-book ratio, marketing-finance interface

Suggested Citation

Kalaignanam, Kartik and Kushwaha, Tarun and Rajavi, Koushyar, How Does Web Personalization Create Value? Lower Cash Flow Volatility or Enhanced Cash Flows (May 8, 2019). Kenan Institute of Private Enterprise Research Paper No. 19-21. Available at SSRN: https://ssrn.com/abstract=3384432 or http://dx.doi.org/10.2139/ssrn.3384432

Kartik Kalaignanam (Contact Author)

Moore School of Business (University of South Carolina) ( email )

1014 Greene Street
Columbia, SC 29208
United States

Tarun Kushwaha

University of North Carolina Kenan-Flagler Business School ( email )

Chapel Hill, NC 27599
United States

Koushyar Rajavi

affiliation not provided to SSRN

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